THE DIGITAL OPPORTUNITY & CREDIT MARKET
Context
Time taken by these companies to hit 1 million users:-
•It took Twitter 24 months
•It took Facebook 10 months
•It took Instagram 2.5 months
•It took Chat GPT 5 days to hit one million Users. (source twitter @gdb)
(Chat GPT is an AI-based chat tool, which provides text answers to any question, a recent tech sensation)
It shows how the digital playground is changing, and if you are good enough opportunities are boundless.
Nepalese Context
There are about 15.51 million internet users in Nepal as of January 2022, which accounts to about 38.4 percent of internet penetration by population size. Our Average QR transaction for the first four month of this fiscal year is around 50 lakh transactions per month and Nrs16 Billions per month on amount. Connect IPS alone contributed to the digital transaction of Nrs 308.2 billion and about 36 lakhs transaction on the month of Ashwin 2079 alone. Esewa the largest digital wallet in Nepal has about 5 Million active users. Pathao, A most popular ride sharing service which operates fully digitally and doesn’t own a single motorbike carries about 60 thousand rides per day and has already enrolled 2 lakh riders.
Operations Vs Credit
The numbers on the context slide, clearly suggest there is a huge opportunity in the field of digitalization, now let’s dive into the banking perspective, Digitalization in Nepal has been very prompt on the operation part of banking. For eg. The payment systems of Nepal are almost similar to those of developed nations bearing some security and privacy updates. QR payment, Card payment, mobile banking, fonepay direct, RTGS, etc are very much in line with best payment practices around the world however same cannot be said about the credit part of banking. Why?
The Importance of DATA
So then, what is stopping the digital transformation on the Credit part of banking?
All answer points in the same direction i.e. DATA., Data is at the core of all digital transformation. We have been lacking in the implementation of digitalization on our credit process due to the lack of data. We do not have enough data to automate our credit processes. Our automation of the credit processes has been limited to the mere replacement of emails and the creation of a web-based digital credit workflow. However things are changing now, with increment of the digital activities and engagements, data will be collected.
Current Data Source for Credit
There are a lot of financial activities being carried out in Nepal which will eventually act as the digital footprint for data collection, some of them are as follows:-
- QR payments
- Fonepay, mobile banking
- Connect Ips, RTGS and its related services
- Online fund transfers
- Wallets like esewa and khalti etc.,
- Income tax and company registrar office web portals
- Land registration authority office web portals
- CIC reporting GoAML etc
Credit Opportunities
Now that the data are being collected, these will eventually be tapped and interconnected by the enterprises to extract meaningful information. Systems will be developed tomorrow to process these data and to use them for credit appraisals and make lending decisions. If this system will be good enough, that will open huge opportunities for the credit part of banking which has been missing for a long and we may eventually be comparable with international best practices like we already do on the payment part of banking. So, what will change?
Credit Appraisals will change
Appraisal of the credit file will be changed from document/collateral-based appraisals to Data-driven appraisals. Clients will be appraised based on the digital records about how they earn and expend their money. An automated risk rating system, and allocation of premiums for the credit appraisals based on such risk ascertained, will be a normal practice. In fact, the work I do right now on a daily basis might become redundant and limited to policy-level work and replaced by highly automated software.
Remote Working will be Normal
HLE Nepal Pvt Limited is an outsourcing Nepali company based in Kathmandu which is a subsidiary of HLE (Home Loan Experts) an Australian company and employs about 400 Nepalese. It provides Home Loan appraisal services to Australian customers, from Nepal. Employees are trained about Australian rules and regulations for a month, and they appraise the loan proposals based on the customer’s past records and prevalent norms. These practices of credit appraisals can be the future of banking from a Credit point of view.
Credit Score
CIB in Nepal right now tracks the overdue, repayment, and sanctions of the credit facilities to a particular borrower, and has now even updated the system to identify the probability of default, however with digitalization more information will be required. For that, Customers will have a credit score that will represent the overall creditworthiness of the customer. It will be obtained through a highly sophisticated tech system that will monitor all the credit and expense habits of the customerCredit score which is already in practice as near as in India as well.
Valuation Norms will Change
Valuation of the properties will be done on the basis of more systemic data which will be backed and supported by the government’s land registration portals. All sales purchases of the properties will be carried out online through registered channels which will help to identify the actual cost of the properties. Projects will be evaluated based on the present value of their future expected cash inflows and financed accordingly as well, instead of the compulsory need for collateral.
Productivity Opportunities
Most of the tedious and unproductive work will be carried out by machine or technology. For eg- Cash counting by humans has been replaced by teller machines. New products and services will be developed which will be merged with our day-to-day life activities and those banking products will become part of living. For eg- Nabil bank has recently introduced the concept of NEO BANK, which is a non-physical bank that operates entirely digitally without having to visit a branch for all traditional and modern banking services and provides cost-cutting opportunities to banks.
Marketing Opportunities
Digitalization will have a huge impact on marketing and related services. The rise of Social media has opened new avenues of marketing, from Tiktok competitions to Photo contests all are examples of changing marketing techniques. Nabil Bank these days makes a huge expenditure to develop seasonal video advertisements with emotional and social touch and have succeeded to win the emotions of a large amount of the public during post-COVID Ads and Festive Ads.
Final Thoughts
Renowned writer Alvin Toffler in his 1970 book Future Shock writes-
“Illiterate of the 21st Century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn”., With digitalization all over, every answer will be there on the internet and the ones who can make a right Question will prevail. And we as a trainer, should train our audiences on how to make the right Questions.
